1. Another video, photo, or music sharing website
Not only is the market filling up with YouTube clones, these sites have two inherent difficulties. First, they rely on copyrighted information and walk a fine line in hopes of not being sued. Lawsuits are expensive and will likely kill a business in its infancy. Second, these sites require big-time hosting needs. Bandwidth, storage, and CPU processing is a huge expense when you’re starting up. One startup, a company that lets site owners host their own mini video portal. They bring in $100k+ in monthly ad revenues, but most of that goes back out in hosting charges. You’re a victim of success, and if you can’t monetize it you’re likely to burn up.

2. Another design gallery site
I subscribe to RSS feeds for about 15 “we’re the biggest web design gallery site in the world” sites. I skim them, usually looking no deeper than the thumbnail. Most of these have the same sites. Once a good site is posted to one, it’s often posted to the others within a week or two. This is a saturated market and the ad revenue is diluted.

3. A web hosting company
Web hosting is a commodity. It’s dirt cheap. And it requires significant overhead: hardware, power, backup systems, physical security, network security, technicians, 24-hour support, software, etc. And you end up charging so little that you end up needing tons of customers just to break even. So you pay sales staff. You constantly upgrade hardware and software, replace failing components, and worry about the legal and billing. It’s a nightmare.

4. Reseller hosting
Even if you can cut out, say, the hard parts of the above hosting setup, reseller hosting means being a middle-man for another hosting provider. You still get to provide 24/7 support, whether or not you like it. But you also deal with the billing and legal issues. Even if it’s not your fault, you get to field the angry phone calls and make refunds (which you then negotiate with your provider so you aren’t losing money). And you come back to the fact that you’re charging more than someone else – not only will your customers will know this, but you’ll struggle to really make any serious money.

5. Another consulting business
There are two problems with consulting. The first is that consulting is a seriously saturated market. Web design, security consulting, etc. are industries full of people trying to make a buck. It’s competitive – which means lower rates, more rejected pitches, and fewer dollars for you. Second, you’re limited by your hours (there are only so many hours in a day, week, and year). Even if you can bill for all of those, you have a limit to how many you can work. It’s hard. While many companies succeed at this model on very large scales, it’s not likely to turn into a billion dollar business. I own a small web consulting business. It’s not impossible to make good money. But it’ll never make me rich.

6. Another media player company
There’s an 800-lb gorilla that moves like a chimp and doesn’t mind flinging some poo. It’s Apple, and the iPod is what drives this industry. Long after they won the market, there are still companies springing up with aspirations of producing the next iPod. They won’t. Nobody cares about their products like people care about their iPods.

7. Anything that doesn’t have a business plan.
Your business plan is crap. But you need to have an idea how you’ll make money. If you start with an idea and hope it starts sending you checks, you’re setting yourself up for failure. As expenses grow, you’ll need something coming in along the way.

8. Anything for Idiots
There are two good reasons not to build products for idiots: you don’t want idiots for customers and you’re probably underestimating just how idiotic idiots can be. It’s fine to work toward simplicity, usability, and accessibility. 37s makes their apps simple, but the idiots out there still struggle. THe Idiot user doesn’t want to spend money, complains about the lack of features, can’t figure out the features that are there, and then jumps to a competitor because it’s Thursday. They’re idiots for a reason.

What Does That Leave?

So what kinds of tech startups should you start up? Something innovative. Something steeped in opportunity.

Want to build a successful business? Build a better mousetrap. That doesn’t mean inventing the first mousetrap; it simply means making a better one. Even if it’s been done, it might be done better. Google stole the huge search industry by doing it better. Don’t be afraid of competition, either. Competitors give perspective to your customers so they can see how much better you are. Competition works to keep up and drives you to keep improving.

1 Comment

-oAk- — November 07, 2006

i’m going to remind you of number 8 every time you won’t let me move the navigation bar around because idiots won’t be able to operate the site the way I want it to look.